This is too Funny…

We have nothing against hedge fund manager John Paulson…after all, we don’t know the man. In fact, he is inter alia known for his philanthropy, having gifted $400 million of his not inconsiderable fortune to Harvard’s School of Engineering and Applied Sciences. But ever since hitting the big time by shorting assorted MBS prior to the 2008 crisis, he has frequently served as an excellent contrary indicator.

 

John-PaulsonJohn Paulson looking at a recent chart of gold …

Photo credit: Bloomberg

 

First he bought bank stocks in 2010, announcing that he was betting on a rebound in growth that would ignite the sector. Not long thereafter, bank stocks began to decline sharply, as the euro area debt crisis went into overdrive. Paulson finally admitted that his strategy was a failure and sold the bulk of his exposure to banks in the fall of 2011 – literally within days of the sector taking off sharply.

 

1-BKXBank stocks and John Paulson – click to enlarge.

 

Gold investors should have realized that this represented a warning sign. Paulson had decided to jinx them in 2010 – 2011 as well. He announced his thesis on investing in gold and gold stocks in 2010 and eventually launched a dedicated fund for the purpose. He even offered a version of it that was denominated in gold, which we thought was actually a great feature.

And yet, the thesis should have been seen as a red flag – it contained nothing that wasn’t already perfectly well known at the time. Considering this fact, wasn’t it reasonable to suspect that the factors he based his decision on were possibly priced in already at the time? It turned out in hindsight that it was. His bet on gold did work out initially, at least in terms of the metal itself (many gold stocks had already begun to struggle). But in 2011 things began to go awry.

However, he probably remembered his foray into bank stocks and was still stung by the fact that he sold them right before his idea would have borne fruit. Thus Paulson decided to largely stick with his gold bet, although he did sell a good chunk of his GLD position during the gold rout in 2013 (we suspect there must have been sizable outflows from his gold fund at the time). Intellectually, we agreed with him. His arguments were sound in principle – but it became increasingly clear that the market had other ideas.

 

2-gold and HUIGold and the HUI index since 2010 – click to enlarge.

 

From a trading standpoint, being stubborn is generally a bad idea. The time will of course come when a trend has gone too far and is ready to reverse. The market is by no means “always right” as the old saying goes. On the contrary, near major turning points, it is always completely wrong.

However, when buying into a sector at already elevated prices (the HUI had gone up by more than 1,800% between late 2000 and its peak in 2011), one needs to be careful. Stop loss levels need to be taken into consideration, which Paulson apparently failed to do. Ever since, it has been a running joke between us and several of our e-mail correspondents that the easiest way to answer the question “when will gold’s bull market resume?” was “the day Paulson sells”.

Well, wouldn’t you know…as Reuters reports today, “Paulson slashed bullish gold bets before prices rocketed” – and so did a number of other hedge funds apparently.

 

“John Paulson, one of the world’s most influential gold investors, slashed his bullish bets on bullion at the end of last year, just before the beleaguered market took off for its biggest rally in years, a federal filing showed on Tuesday.

The New York-based hedge fund Paulson & Co, led by the longtime gold bull, cut its stake in SPDR Gold Trust, the world’s biggest gold exchange-traded fund (ETF), by 37 percent in the fourth quarter. It was Paulson’s third cut to its SPDR stake in 2-1/2 years.

The recent cut brought the stake to 5.78 million shares worth $585.9 million on Dec. 31, the U.S. Securities and Exchange Commission filing showed. It followed a heftier cut in the second quarter 2013 when Paulson almost halved his stake from 21.8 million shares, during gold’s historic sell-off. The move by the single largest SPDR gold shareholder highlights how investors shunned gold as the U.S. Federal Reserve prepared to cut interest rates [Ed note: sic – they probably mean to write “hike”] in December for the first time in a decade.

Paulson’s view on gold has been closely followed since he earned roughly $5 billion on a bet on the metal in 2010, following a similarly successful $4 billion payday on his bet against the overheated housing market in 2007.

Others, like Soros Fund Management LLC and Jana Partners LLC, which had already eliminated large stakes from Market Vectors Gold Miners ETF earlier in the year, stayed out. Also in the quarter ended Dec. 31, Caxton Corp eliminated its stake in Market Vectors Gold Miners ETF, having held 31,733 shares worth $436,000 in the third quarter, the filing showed.

 

(emphasis added)

We should add to this that Paulson most definitely did not “earn $5 billion in 2010” with his bet on gold, given that he eventually sold at lower prices in 2013 and again more recently. Paper profits don’t count – the actual outcome was a big loss (the loss in his positions in gold stocks was even greater).

Reuters also mentions that at least one big hedge fund correctly recognized the emerging opportunity and took it:

 

“In contrast to Paulson, CI Investments Inc an investment manager of Toronto-based CI Financial Corp, raised its stake in SPDR to 944,579 shares worth $95.8 million, according to a filing earlier this month.”

 

We guess these guys deserve to be designated the “smart money” this time around.

 

Conclusion

It seems now that Mr. Paulson did after all manage to repeat in the gold sector what he did with respect to bank stocks in 2011. He removed the last obstacle to the market’s revival by finally capitulating.

 

Charts by: StockCharts

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Gold Gets a Paulson Boost”

  • vfor:

    I think this is exactly what is happening now, i.e. a turning point for gold. During the pullback in gold over the last few days, miners held up quite well and some even rose. I guess that major miners lead at the start of a new bull run with explorers a distant second. That is what seems to happen now too.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Pushing Past the Breaking Point
      Schemes and Shams Man’s willful determination to resist the natural order are in vain.  Still, he pushes onward, always grasping for the big breakthrough. The allure of something for nothing is too enticing to pass up.   From the “displays of disbelief, revealing touching old-fashioned notions” file... [PT]   Systems of elaborate folly have been erected with the most impossible of promises.  That prosperity can be attained without labor.  That benefits...
  • The Myth of Capitalism - A Book by Jonathan Tepper
      Crony Capitalism vs. Free Markets Many of our readers are probably aware of the excellent work our friend Jonathan Tepper does for Variant Perception (VP)*****, a financial research boutique that really does bring a unique perspective to the table*. Jonathan (with co-author Denise Hearn) has just added a new book to his résumé, which is going to be released on 12 November: The Myth of Capitalism (MoC) – Monopolies and the Death of Competition** (a link to the official site is at the...
  • Three Cheers for James Riley!
      Going All In All people, of both good and questionable character, share a singular talent.  They excel at taking something that’s tolerable in moderation, and then pushing it to the outer limits of absurdity.  Why live with restraint when you can get radical?   A fairly famous stretch of LA riverbed graffiti... [PT] Photo credit: saber   Public and private debt levels, NASDAQ stock valuations, the federal register, face tattoos, canned energy drinks.  You name...
  • Crumbling Piles of Sand
      Just a Little Avalanche or an Implosion? A few years ago, we briefly discussed the dynamics of sand piles in these pages, which are a special field of study in mathematics and physics (mathematically inclined readers can take a look at two papers on the subject here:”Driving Sandpiles to Criticality and Beyond “ (PDF) and  'Games on Line Graphs and Sand Piles “(PDF) – unfortunately two other studies that used to be available have in the meantime disappeared from the...
  • When Fake Money Becomes Scarce
      Remaining Focused A rousing display of diversions this week assured the American populace was looking every which way but right under its collective nose.  Midterm elections.  White House spats with purveyors of fake news.  The forced resignation of Attorney General Sessions...   Old drug warrior (otherwise recused) on his way home to Alabama...   Sideshows like these, and many more, offered near limitless opportunities to focus on matters of insignificance.  Why...
  • Fun and Profit - Precious Metals Supply and Demand
      While Not Saving The Planet, Let Us At Least Have A Good Time The price of gold went up seven bucks, and that of silver rose eight pennies. For many people, the attraction to gold and silver began with a desire to protect themselves from the monetary train wreck of 2008. That often grew into a sense that gold is the solution to that problem.   The post 2008 GFC monetary train wreck: US true broad money supply is expanded by more than 153% in a mere decade, as the Fed takes...
  • Wizard’s First Rule – Precious Metals Supply and Demand
      The Last to Go Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing.   An image from the title page of Terry Goodkind's best-selling fantasy epic “Wizard's First Rule”. We'd be at bit wary of standing around on that stone-slab bridge to be honest. [PT]   However, for purposes of this essay, the important part is the rule...
  • US Stock Market - Re-Coupling with a Panic Cycle?
      The Mighty Gartman Investment newsletter writer Dennis Gartman (a.k.a. “the Commodities King”) has been a target of ridicule at Zerohedge for a long time. His pompous style of writing and his uncanny ability to frequently make perfectly mistimed short term market calls have made him an easy target.* It would be quite ironic if a so far quite good recommendation he made last week were to turn into the call of a lifetime (see ZH: “Gartman: 'We Are Officially Recommending Shorting...
  • Roger Barris for Congress!
      Economic Man Threatens to Leave You Alone if Elected This one is mainly for readers residing in that glorious water source for California commonly known as Colorado. In case you are not aware of it yet, Roger “Economic Man” Barris, an occasional contributor to this site, is running for Congress in Colorado on a Libertarian Party ticket. We will briefly explain why you should vote for Roger, but first two pictures:   Roger Barris, Libertarian Party candidate for the House...
  • Revisiting the Halloween Effect
      From Crash Danger to End-of-the-Year Ramp   [Ed note by PT: we are unfortunately a week late in posting this issue of SI, which didn't reach us in time due to a technical problem. We decided to post it belatedly anyway: for one thing, the effect under discussion is normally in effect until the end of the year; for another, the statistical validity of this information goes beyond the current year, as it is a recurring phenomenon. Lastly we would note that we have a strong...
  • It's Not That Day Just Yet - Precious Metals Supply and Demand
      Degrees of Urgency Monday was Veterans Day, a bank holiday in the US. The prices of gold and silver dropped $23 and $0.61 respectively. “But isn’t gold supposed to go up when...?”   Warren Buffet and Aragorn discuss what to do with the gold. Aragorn wants it, because he knows that even if it's not today, “that day” will come. [PT]   Why? Because everyone else will bid it up. Why? Because they expect someone else to bid it up. Why? Warren Buffet is...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!